Bank IRA vs. Investment IRA

An Individual Retirement Account, or IRA, is held as a tax-deferred or tax-free investment by a custodian or trustee. Many different financial institutions are able to serve as trustees. Most banks offer IRA services, and brokerage firms and mutual fund companies do so as well. Your decision of which type of trustee to open an IRA with comes down to many different factors, such as ease of investment, required minimums and fees. Risk of loss is also a factor with many.

Investment Choices

Banks offer traditional choices for investments in an IRA, such as savings accounts and certificates of deposit, with brokerage firms and mutual fund companies offering individual mutual funds or stocks. Many banks have expanded their offerings into brokerage services, allowing you to diversify your investment holdings at your bank.

Fees

Bank savings accounts and certificates of deposit traditionally charge low fees. Investment options usually cost more, both in fees on the mutual funds and commissions for investing. The trustee fees may vary between the two, with investment IRAs offering more services charging a higher trustee fee. Some investment IRAs are self-directed, meaning you can choose many non-traditional investments, and these accounts carry the highest fees.

Insured Money

Money invested in bank IRAs with savings accounts and certificates of deposit is FDIC-insured, meaning that the money is insured by the U.S. government up to $250,000 per depositor, per account, as of 2012, against loss in case of bank failure. Investment IRAs in stocks or bonds may lose money and offer no guarantee or insurance against loss.

Minimum Investment

Banks typically allow a lower or no-minimum investment, allowing you to start an IRA with just a savings account. Many investment IRAs require a higher minimum to open an account, typically $1,000 or more. Some mutual fund companies waive the minimum opening balance requirement if you agree to have regular, periodic investments automatically drafted from your checking account.

Ease of Investment

Most investment and mutual fund companies have online access, and it is easy to invest with them. However, investing in a bank IRA is as simple as walking in to your branch, sitting with an agent and opening an account. The bank is less intimidating for some. Couple this with the ability of the bank to potentially transition you to investment IRA products when you are ready, and it gives the bank an edge for those who value simplicity and ease of handling their IRA and prefer face-to-face contact.

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